Gross Domestic Product and Gross National Product
Gross domestic product, or GDP, is a way of measuring the size of our economy.
Count up all the goods, services any economic activities within a country in a given period of time (usually a calendar year) and you have GDP, gross domestic product. The common method for calculating GDP is to add up the values of all goods and services from each of the four sectors of the economy: Personal Consumption Expenditures, Gross Private Domestic Investment, Government Consumption Expenditures, and Net Exports. Income arising from possessions and investments abroad is NOT included in GDP.
GDP per capita (per resident) is total GDP divided by the midyear population of a country. How much GDP grows is a measure of health a countries economy. This growth rate is also used to compare different countries economic standing to one another.
GDP is often expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 2.5%, this is thought to mean that the economy has grown by 2.5% over the last year.
GNP, gross national product, and GDP tend to be used as synonyms, although GDP is definitely the more popular measure among economists and general public. The two measures are fairly close numerically. The difference is that GDP measures all production within the U.S., by whoever happens to be working here. GNP measures the production of all Americans, wherever they happen to be working. With globalization growing at a rapid pace, GNP perhaps is becoming more accurate.
The simple fact that these numbers are so closely followed makes them important. Many economists argue the inadequacy of these measurements. These are just a few of those arguments are :
* GDP treats spending on crime, divorce and natural disasters as economic gain.
* GDP ignores the non-market economy of the household and community, i.e.: child care, elder care, volunteer work, because no money changes hands.
* Degradation or depletion of natural resources to produce these goods and services is not accounted for, violating basic account principles, i.e.: as we use up our natural resources, such as oil, the wealth of our nation declines by that value.
Despite some faults, GDP remains the most important measure of how well any economy is performing.